Disruptive Trends That Will Transform The Auto Industry - McKinsey PDF

2/12/2018 Disruptive trends that will transform the auto industry | McKinsey
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Automotive & Assembly
Report
January 2016
Disruptive trends that will transform
the auto industry
By Paul Gao, Hans-Werner Kaas, Detlev Mohr, and Dominik Wee
Technology-driven trends will revolutionize how industry players
respond to changing consumer behavior, develop partnerships, and
drive transformational change.
T
oday’s economies are dramatically changing, triggered by development in
emerging markets, the accelerated rise of new technologies, sustainability
policies, and changing consumer preferences around ownership. Digitization, increasing
automation, and new business models have revolutionized other industries, and
automotive will be no exception. These forces are giving rise to four disruptive
technology-driven trends in the automotive sector: diverse mobility, autonomous
driving, electrification, and connectivity.
Most industry players and experts agree that the four trends will reinforce and accelerate
one another, and that the automotive industry is ripe for disruption. Given the
widespread understanding that game-changing disruption is already on the horizon,
there is still no integrated perspective on how the industry will look in 10 to 15 years as a
result of these trends. To that end, our eight key perspectives on the “2030 automotive
revolution” are aimed at providing scenarios concerning what kind of changes are coming
and how they will affect traditional vehicle manufacturers and suppliers, potential new
players, regulators, consumers, markets, and the automotive value chain.
https://www.mckinsey.com/industries/automotive-and-assembly/our-insights/disruptive-trends-that-will-transform-the-auto-industry 1/12
This study aims to make the imminent changes more tangible. The forecasts should thus
be interpreted as a projection of the most probable assumptions across all four trends,
based on our current understanding. They are certainly not deterministic in nature but
should help industry players better prepare for the uncertainty by discussing potential
future states.
1. Driven by shared mobility, connectivity services,
and feature upgrades, new business models could
expand automotive revenue pools by about 30
percent, adding up to $1.5 trillion.
The automotive revenue pool will significantly increase and diversify toward on-demand
mobility services and data-driven services. This could create up to $1.5 trillion—or 30
percent more—in additional revenue potential in 2030, compared with about $5.2 trillion
from traditional car sales and aftermarket products/services, up by 50 percent from
about $3.5 trillion in 2015 (Exhibit 1).
Exhibit 1
Connectivity, and later autonomous technology, will increasingly allow the car to become
a platform for drivers and passengers to use their time in transit to consume novel forms
of media and services or dedicate the freed-up time to other personal activities. The
increasing speed of innovation, especially in software-based systems, will require cars to
be upgradable. As shared mobility solutions with shorter life cycles will become more
common, consumers will be constantly aware of technological advances, which will
further increase demand for upgradability in privately used cars as well.
2. Despite a shift toward shared mobility, vehicle
unit sales will continue to grow, but likely at a lower
rate of about 2 percent per year.
Overall global car sales will continue to grow, but the annual growth rate is expected to
drop from the 3.6 percent over the last five years to around 2 percent by 2030. This drop
will be largely driven by macroeconomic factors and the rise of new mobility services
such as car sharing and e-hailing.
A detailed analysis suggests that dense areas with a large, established vehicle base are
fertile ground for these new mobility services, and many cities and suburbs of Europe and
North America fit this profile. New mobility services may result in a decline of private-
vehicle sales, but this decline is likely to be offset by increased sales in shared vehicles
that need to be replaced more often due to higher utilization and related wear and tear.
The remaining driver of growth in global car sales is the overall positive macroeconomic
development, including the rise of the global consumer middle class. With established
markets slowing in growth, however, growth will continue to rely on emerging
economies, particularly China, while product-mix differences will explain different
development of revenues.
3. Consumer mobility behavior is changing, leading
to up to one out of ten cars sold in 2030 potentially
being a shared vehicle and the subsequent rise of a
market for fit-for-purpose mobility solutions.
Changing consumer preferences, tightening regulation, and technological breakthroughs
add up to a fundamental shift in individual mobility behavior. Individuals increasingly
use multiple modes of transportation to complete their journey; goods and services are
delivered to rather than fetched by consumers. As a result, the traditional business model
of car sales will be complemented by a range of diverse, on-demand mobility solutions,
especially in dense urban environments that proactively discourage private-car use.
Consumers today use their cars as all-purpose vehicles, whether they are commuting
alone to work or taking the whole family to the beach. In the future, they may want the
flexibility to choose the best solution for a specific purpose, on demand and via their
smartphones. We already see early signs that the importance of private-car ownership is
declining: in the United States, for example, the share of young people (16 to 24 years)
who hold a driver’s license dropped from 76 percent in 2000 to 71 percent in 2013, while
there has been over 30 percent annual growth in car-sharing members in North America
and Germany over the last five years.
Consumers’ new habit of using tailored solutions for each purpose will lead to new
segments of specialized vehicles designed for very specific needs. For example, the
market for a car specifically built for e-hailing services—that is, a car designed for high
utilization, robustness, additional mileage, and passenger comfort—would already be
millions of units today, and this is just the beginning.
As a result of this shift to diverse mobility solutions, up to one out of ten new cars sold in
2030 may likely be a shared vehicle, which could reduce sales of private-use vehicles. This
would mean that more than 30 percent of miles driven in new cars sold could be from
shared mobility. On this trajectory, one out of three new cars sold could potentially be a
shared vehicle as soon as 2050.
4. City type will replace country or region as the
most relevant segmentation dimension that
determines mobility behavior and, thus, the speed
and scope of the automotive revolution.
Understanding where future business opportunities lie requires a more granular view of
mobility markets than ever before. Specifically, it is necessary to segment these markets
by city types based primarily on their population density, economic development, and
prosperity. Across those segments, consumer preferences, policy and regulation, and the
availability and price of new business models will strongly diverge. In megacities such as
London, for example, car ownership is already becoming a burden for many, due to
congestion fees, a lack of parking, traffic jams, et cetera. By contrast, in rural areas such as
the state of Iowa in the United States, private-car usage will remain the preferred means
of transport by far.
The type of city will thus become the key indicator for mobility behavior, replacing the
traditional regional perspective on the mobility market. By 2030, the car market in New
York will likely have much more in common with the market in Shanghai than with that
of Kansas.
5. Once technological and regulatory issues have
been resolved, up to 15 percent of new cars sold in
2030 could be fully autonomous.
Fully autonomous vehicles are unlikely to be commercially available before 2020.
Meanwhile, advanced driver-assistance systems (ADAS) will play a crucial role in
preparing regulators, consumers, and corporations for the medium-term reality of cars
taking over control from drivers.
The market introduction of ADAS has shown that the primary challenges impeding faster
market penetration are pricing, consumer understanding, and safety/security issues.
Regarding technological readiness, tech players and start-ups will likely also play an
important role in the development of autonomous vehicles. Regulation and consumer
acceptance may represent additional hurdles for autonomous vehicles. However, once
these challenges are addressed, autonomous vehicles will offer tremendous value for
consumers (for example, the ability to work while commuting, or the convenience of
using social media or watching movies while traveling).
A progressive scenario would see fully autonomous cars accounting for up to 15 percent
of passenger vehicles sold worldwide in 2030 (Exhibit 2).
Exhibit 2
6. Electrified vehicles are becoming viable and
competitive; however, the speed of their adoption
will vary strongly at the local level.
Stricter emission regulations, lower battery costs, more widely available charging
infrastructure, and increasing consumer acceptance will create new and strong
momentum for penetration of electrified vehicles (hybrid, plug-in, battery electric, and
fuel cell) in the coming years. The speed of adoption will be determined by the interaction
of consumer pull (partially driven by total cost of ownership) and regulatory push, which
will vary strongly at the regional and local level.
In 2030, the share of electrified vehicles could range from 10 percent to 50 percent of
new-vehicle sales. Adoption rates will be highest in developed dense cities with strict
emission regulations and consumer incentives (tax breaks, special parking and driving
privileges, discounted electricity pricing, et cetera). Sales penetration will be slower in
small towns and rural areas with lower levels of charging infrastructure and higher
dependency on driving range.
Through continuous improvements in battery technology and cost, those local
differences will become less pronounced, and electrified vehicles are expected to gain
more and more market share from conventional vehicles. With battery costs potentially
decreasing to $150 to $200 per kilowatt-hour over the next decade, electrified vehicles
will achieve cost competitiveness with conventional vehicles, creating the most
significant catalyst for market penetration. At the same time, it is important to note that
electrified vehicles include a large portion of hybrid electrics, which means that even
beyond 2030, the internal-combustion engine will remain very relevant.
7. Within a more complex and diversified mobility-
industry landscape, incumbent players will be
forced to compete simultaneously on multiple
fronts and cooperate with competitors.
While other industries, such as telecommunications or mobile phones/handsets, have
already been disrupted, the automotive industry has seen very little change and
consolidation so far. For example, only two new players have appeared on the list of the
top-15 automotive original-equipment manufacturers (OEMs) in the last 15 years,
compared with ten new players in the handset industry.
A paradigm shift to mobility as a service, along with new entrants, will inevitably force
traditional car manufacturers to compete on multiple fronts. Mobility providers (Uber,
for example), tech giants (such as Apple, Google), and specialty OEMs (Tesla, for instance)
increase the complexity of the competitive landscape. Traditional automotive players
that are under continuous pressure to reduce costs, improve fuel efficiency, reduce
emissions, and become more capital-efficient will feel the squeeze, likely leading to
shifting market positions in the evolving automotive and mobility industries, potentially
leading to consolidation or new forms of partnerships among incumbent players.
In another game-changing development, software competence is increasingly becoming
one of the most important differentiating factors for the industry, for various domain
areas, including ADAS/active safety, connectivity, and infotainment. Further on, as cars
are increasingly integrated into the connected world, automakers will have no choice but
to participate in the new mobility ecosystems that emerge as a result of technological and
consumer trends.
8. New market entrants are expected to target
initially only specific, economically attractive
segments and activities along the value chain
before potentially exploring further fields.
Diverging markets will open opportunities for new players, which will initially focus on a
few selected steps along the value chain and target only specific, economically attractive
market segments—and then expand from there. While Tesla, Google, and Apple currently
generate significant interest, we believe that they represent just the tip of the iceberg.
Many more new players are likely to enter the market, especially cash-rich high-tech
companies and start-ups. These new entrants from outside the industry are also wielding
more influence with consumers and regulators (that is, generating interest around new
mobility forms and lobbying for favorable regulation of new technologies). Similarly,
some Chinese car manufacturers, with impressive sales growth recently, might leverage
the ongoing disruptions to play an important role globally.
Automotive incumbents cannot predict the future of the industry with certainty. They
can, however, make strategic moves now to shape the industry’s evolution. To get ahead of
the inevitable disruption, incumbent players need to implement a four-pronged strategic
approach:
Prepare for uncertainty. Success in 2030 will require automotive players to shift to a
continuous process of anticipating new market trends, exploring alternatives and
complements to the traditional business model, and exploring new mobility business
models and their economic and consumer viability. This will require a sophisticated
degree of scenario planning and agility to identify and scale new attractive business
models.
Leverage partnerships. The industry is transforming from competition among peers
toward new competitive interactions, but also partnerships and open, scalable
ecosystems. To succeed, automotive manufacturers, suppliers, and service providers need
to form alliances or participate in ecosystems—for example, around infrastructure for
autonomous and electrified vehicles.
Drive transformational change. With innovation and product value increasingly
defined by software, OEMs need to align their skills and processes to address new
challenges like software-enabled consumer value definition, cybersecurity, data privacy,
and continuous product updates.
Reshape the value proposition. Car manufacturers must further differentiate their
products/services and change their value proposition from traditional car sales and
maintenance to integrated mobility services. This will put them in a stronger position to
retain a share of the globally growing automotive revenue and profit pool, including new
business models such as online sales and mobility services, and cross-fertilizing the
opportunities between the core automotive-business and new mobility-business models.
Download the full report on which this article is based, Automotive revolution—
perspective towards 2030: How the convergence of disruptive technology-driven trends
could transform the auto industry (PDF–2.4MB).
About the author(s)
Paul Gao is a director in McKinsey’s Hong Kong office, Hans-Werner Kaas is a
director in the Detroit office, Detlev Mohr is a director in the Stuttgart office, and
Dominik Wee is a principal in the Munich office.
The authors wish to thank Sven Beiker, Garrett Bray, Alexander Brotschi, Gregor
Eckhard, Mingyu Guan, Russell Hensley, Dominic Kohler, Timo Möller, and Nicolai
Müller for their contributions to this article.

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